We are often asked why paying UK stamp duty on share transfers involves such an archaic process. Not only is physically stamping documents in this digital era far behind the times, but there are actually two stamp taxes for share transfers: SDRT applies where an agreement to transfer shares is entered into; and stamp duty applies where a physical document transferring shares is executed.
In most cases, executing an instrument of transfer cancels (‘franks’) the SDRT, so that there is no double taxation. This unwieldy design means that there are times when a physical instrument of transfer actually has to be created for a transaction that otherwise doesn’t need one, simply to claim a relief and ‘frank’ the SDRT charge – barmy!
Why do we have two different regimes? When SDRT was introduced in 1986, stamp duty applied more broadly than just to shares. But over time, the scope of stamp duty has been narrowed, making it now largely a duplicate tax. We no longer need it and it should be abolished, so that SDRT becomes the sole transfer tax on shares. The case for change is:
Simplification: Stamp duty has evolved piecemeal over the last 100 years, leaving a trail of unwieldy legislature, which has not had any meaningful consolidation. As a consequence, the legislation is confusing and compliance failure is not uncommon. SDRT, on the other hand, is a modern tax largely contained in a single Finance Act and a single set of regulations. The solution is obvious.
Faster execution of transactions: As things stand, a company secretary cannot update a UK share register unless the stock transfer form has been appropriately stamped. Taxpayers would benefit from no longer having to wait weeks or months for stamped documents to be returned. Share registers could be updated immediately, thereby simplifying the execution of transactions and reducing compliance costs.
Streamlining HMRC: Each and every document and claim that is submitted to the Stamp Office has to be examined and manually processed by the Stamp Office, taking up valuable time and resources. SDRT on the other hand is a self-assessed tax with an enquiry regime like other modern taxes, meaning that HMRC can review a sample of notified transactions using a risk based approach.
Reducing inefficiency: The paper based system is susceptible to system failure. Documents can be lost or take considerable time to be returned to taxpayers. This is a real inconvenience for taxpayers, since the stock transfer form is the primary document that proves ownership of securities until the share register can be updated. Eradicating inefficiency by moving to an electronic filing regime would be highly desirable.
In our view, an overhaul of the stamp duty regime is now long overdue and would be beneficial for all stakeholders. Some work is required to simplify the current legislation, but much of the framework already exists and the current reliefs from stamp duty could be amended to become reliefs from SDRT. The fact that a sensible transfer tax regime already exists in the form of SDRT makes the case for change all the more compelling and simplification really wouldn’t be difficult to achieve.
We are often asked why paying UK stamp duty on share transfers involves such an archaic process. Not only is physically stamping documents in this digital era far behind the times, but there are actually two stamp taxes for share transfers: SDRT applies where an agreement to transfer shares is entered into; and stamp duty applies where a physical document transferring shares is executed.
In most cases, executing an instrument of transfer cancels (‘franks’) the SDRT, so that there is no double taxation. This unwieldy design means that there are times when a physical instrument of transfer actually has to be created for a transaction that otherwise doesn’t need one, simply to claim a relief and ‘frank’ the SDRT charge – barmy!
Why do we have two different regimes? When SDRT was introduced in 1986, stamp duty applied more broadly than just to shares. But over time, the scope of stamp duty has been narrowed, making it now largely a duplicate tax. We no longer need it and it should be abolished, so that SDRT becomes the sole transfer tax on shares. The case for change is:
Simplification: Stamp duty has evolved piecemeal over the last 100 years, leaving a trail of unwieldy legislature, which has not had any meaningful consolidation. As a consequence, the legislation is confusing and compliance failure is not uncommon. SDRT, on the other hand, is a modern tax largely contained in a single Finance Act and a single set of regulations. The solution is obvious.
Faster execution of transactions: As things stand, a company secretary cannot update a UK share register unless the stock transfer form has been appropriately stamped. Taxpayers would benefit from no longer having to wait weeks or months for stamped documents to be returned. Share registers could be updated immediately, thereby simplifying the execution of transactions and reducing compliance costs.
Streamlining HMRC: Each and every document and claim that is submitted to the Stamp Office has to be examined and manually processed by the Stamp Office, taking up valuable time and resources. SDRT on the other hand is a self-assessed tax with an enquiry regime like other modern taxes, meaning that HMRC can review a sample of notified transactions using a risk based approach.
Reducing inefficiency: The paper based system is susceptible to system failure. Documents can be lost or take considerable time to be returned to taxpayers. This is a real inconvenience for taxpayers, since the stock transfer form is the primary document that proves ownership of securities until the share register can be updated. Eradicating inefficiency by moving to an electronic filing regime would be highly desirable.
In our view, an overhaul of the stamp duty regime is now long overdue and would be beneficial for all stakeholders. Some work is required to simplify the current legislation, but much of the framework already exists and the current reliefs from stamp duty could be amended to become reliefs from SDRT. The fact that a sensible transfer tax regime already exists in the form of SDRT makes the case for change all the more compelling and simplification really wouldn’t be difficult to achieve.
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